The Evolving Video Landscape: The Rise of Hybrid VOD Models
As a leading video analytics company, NPAW has noticed the global proliferation of OTT services. Most telcos and broadcasters have started switching to streaming video technology in the past decade.
The video content delivery landscape is evolving rapidly, driven by shifting dynamics among OTT platforms, telecom operators, and traditional broadcasters. Consumers are increasingly moving away from the traditional Pay TV model with its hefty monthly fees and rigid contracts in favor of flexible, personalized OTT services. These services are designed to adapt and respond to changing consumer preferences and the emergence of new content delivery platforms.
This shift presents both opportunities and challenges for established services. As major players like Disney+, Prime Video and Netflix increase their content catalogs, new entrants face the critical question. Which streaming model should they choose:
- SVOD (Subscription Video On Demand)
- AVOD (Ad-funded Video On Demand)
- TVOD (Transactional Video-on-demand)
- FAST (Free Ad-Supported Streaming TV)
Navigating the VOD Dilemma
The choice of VOD models is pivotal for video companies, and it must align with evolving consumer trends. According to website Newscast Studio, HVOD (Hybrid video-on-demand), is an emerging model that is increasingly attractive to streaming platforms.
Netflix’s recent strategy, which includes integrating ads for their lower tier of subscribers, highlights the trend of blending ad-based features within subscription services. Prime Video has also adopted a similar strategy, whereby ads are integrated into the platform.
This approach lets streaming services offer a lower subscription fee, while monetizing content with targeted ad campaigns. It is also a way to attract viewers who would be otherwise unwilling to pay a large fee to use the streaming service, especially with so many platforms to choose from.
Let’s deep dive into the various Video-on-demand models, weighing up the pros and cons of each.
SVOD: The Secure and Popular Choice
The SVOD model remains the more stable and widely embraced option. It offers a more predictable revenue stream than AVOD, with established brands like Hulu, Amazon Prime, Netflix, and Disney+ successfully leveraging this approach. As of 2024, the SVOD market has seen continued growth, with revenues reaching approximately USD $109.6 billion globally, according to website DigitalTV Europe. This growth is driven by competition among major players and the trend of households subscribing to multiple services to access diverse content.
SVODs provide a reliable income stream and are well-suited for producing high-quality, premium content. For instance, Netflix’s investment in original content has grown substantially, with a budget of USD $17 billion in 2024, says Fortune.com. However, high user acquisition costs remain a challenge. For example, Netflix’s cost to acquire a single user can exceed $120, making user retention crucial for profitability.
AVOD: Diverse but Unpredictable
Unlike SVOD, AVOD relies on engaging content and maximizing ad impressions to generate revenue. YouTube remains the leading example of a successful AVOD platform, benefiting from user-generated content and ad partnerships. The key to success in AVOD is optimizing ad placements and maintaining a steady stream of content to keep users engaged and attract advertisers.
TVOD: Pay-per-view TV plus
TVOD is a monetization model where viewers pay a one-time fee to access content. It includes three subcategories: Pay-per-view (PPV), Electronic Sell-Through (EST), and Download-to-Rent (DTR). Platforms like iTunes and Amazon Prime Video use this model. TVOD benefits include higher revenue potential and the ability to monetize exclusive or time-sensitive content, though it may lead to lower customer retention compared to subscription models. It’s ideal for niche or premium content.
FAST: Free TV with targeted ads
Free Ad-Supported Streaming TV (FAST) is an OTT model where users access linear television content for free, supported by targeted ads. FAST services offer scheduled programming on “virtual channels” without the ability to select specific content. It’s growing rapidly, attracting users with its wide range of content, including live TV, older shows, niche sports, and digital-first media. FAST is seen as a potential alternative to traditional cable, providing a lucrative opportunity for content monetization through ads.
HVOD: The best of all worlds?
Hybrid Video on Demand (HVOD) is a revenue model combining multiple monetization strategies, such as subscription (SVOD), advertising (AVOD), and transactional (TVOD) streams. This approach allows platforms to cater to a wider audience by offering flexible price points, personalized ads, and diverse content options. It helps streaming services respond to consumer trends, increase retention, and diversify revenue through cross-selling, upselling, and data-driven pricing strategies.
Lessons from Mobile Apps
The hybrid model, where users can choose between a subscription or a free, ad-supported version, has gained traction. Mobile app developers have long used this approach, allowing users to access content for free while monetizing through ads. This model creates two revenue streams: ad revenue and subscription fees from users willing to pay for an ad-free experience.
The Importance of A/B Testing and Analytics
Choosing the right business model requires careful consideration and data-driven decision-making. A/B testing and advanced analytics tools, such as NPAW Product Analytics, are critical for understanding platform performance and user behavior. These tools help optimize user experience and guide strategic decisions to enhance service offerings.
In conclusion, the hybrid ad-subscription model is becoming increasingly popular, offering a flexible approach that accommodates various customer needs. By leveraging insights from analytics and continuously adapting to market trends, video companies can navigate the evolving landscape and maximize their revenue potential. To learn more about the NPAW Suite, please contact us to request a demo.